The World Bank Global Insolvency Law Database

Mr. Rahmat Bastian, a partner in the BT Partnership Law Firm in Jakarta, Indonesia, has graciously given the World Bank permission to reproduce the following English translation, prepared by his firm, of the revised Indonesian Law No. 37 of 2004 on Bankruptcy & Suspension of Debt Payment Obligation. The document has been adapted specifically for publication on the Global Insolvency Law Database. Copies of this paper in full or in part may be printed or downloaded for personal use only, but may not be republished or reprinted for distribution or for profit without the written permission of an authorized representative of the World Bank. The World Bank Global Insolvency Law Database LAW OF THE REPUBLIC OF INDONESIA NUMBER 37 OF 2004 ON BANKRUPTCY AND SUSPENSION OF OBLIGATION FOR PAYMENT OF DEBTS WITH THE BLESSINGS OF GOD ALMIGHTY THE PRESIDENT OF THE REPUBLIC OF INDONESIA Considering : a. that the development of Indonesian legal system in order to create just and prosperous society on the basis of Pancasila and 1945 Constitution must support and ensure the certainty, order, enforcement and protection of law that consist in justice and the truth; b. that the rapid development of economy and trade results in more debt problems in the society; c. that monetary crisis in Indonesia brings adverse impact on national economy so that business community faces significant problems in their efforts to settle their debts. d. that major part of the law on bankruptcy (Faillissements-verorderning, State Gazette Number 217 of 1905 in conjunction with the State Gazette Number 348 of 1906) as one of the legal means of settling debt-related problems no longer sufficient to deal with the legal development and needs and therefore the said law has been amended with the The World Bank 1

Government Regulation in lieu of law Number 1 of 1998 on the Amendments to Bankruptcy Law, which was thereafter enacted as a law on the basis of Law Number 4 of 1998. However the amendment had not been sufficient to meet legal development and needs of the society; e. that on the basis of the considerations as referred to in points a, b, c and d above, a new bankruptcy and suspension of obligation for payment of debts law needs to be passed. Recalling : 1. Article 1 paragraph (3), Article 5 paragraph (1), Article 20, Article 24 and Article 33 paragraph (4) of Constitution of the Republic of Indonesia of 1945; 2. New Reglement of Indonesia (Het Herziene Indonesisch Reglement, State Gazette No. 559 of 1926 in conjunction with the State Gazette No. 44 of 1941); 3. Reglement of Procedural Code for Regions other than Java and Madura (Rechtsreglement Buitengewesten, St Gazette No. 227 of 1927); 4. Law Number 14 of 1985 on Supreme Court (Supplement Number 3316 to the State Gazette of the Republic of Indonesia Number 73 of 1985) as amended with Law Number 5 of 2004 on Amendments to Law Number 14 of 1985 on Supreme Court (Supplement Number 4359 to the State Gazette of the Republic of Indonesia Number 9 of 2004) 5. Law Number 2 of 1986 on General Court (Supplement Number 3327 to the State Gazette of the Republic of Indonesia Number 20 of 1986) as amended with Law Number 8 of 2004 on the Amendments to Law Number 2 of 1986 on General Court (Supplement Number 4379 to the State Gazette of the Republic of Indonesia Number 34 of 2004); The World Bank 2

6. Law Number 4 of 2004 on the Judicial Power (Supplement Number 4358 to the State Gazette of the Republic of Indonesia Number 8 of 2004); With The Joint Approval From THE HOUSE OF PEOPLE S REPRESENTATIVES OF THE REPUBLIC OF INDONESIA And THE PRESIDENT OF THE REPUBLIC OF INDONESIA DECIDES: To enact: LAW OF BANKRUPTCY AND SUSPENSION OF OBLIGATION FOR PAYMENT OF DEBTS CHAPTER I GENERAL PROVISIONS Article 1 In this law, the following terms shall have the meanings as defined below: 1. Bankruptcy shall mean general confiscation of all assets of a Bankrupt Debtor that will be managed and liquidated by a Curator under the supervision of Supervisory Judge as provided for herein; 2. Creditor shall mean the person who has receivables from an agreement or a law that may be collected before the court; 3. Debtor shall mean a person who has indebtedness for which it may be demanded to pay before the court; 4. Bankrupt Debtor shall mean a debtor who has been declared as bankrupt with judicial decision; 5. Curator shall mean the Orphan s Chamber or an individual appointed by the court to manage and liquidate the assets of Bankrupt Debtor under the supervision of Supervisory Judge as provided for herein; The World Bank 3

6. Indebtedness shall mean an obligation that is expressed or may be expressed in monetary unit under Indonesian or foreign currency that exist now or thereafter or is contingent that is incurred from an agreement or pursuant to the prevailing law and must be fulfilled by the Debtor, failing which the Creditor becomes entitled to recover its loan from the assets of the Debtor; 7. The court shall mean commercial court within public court; 8. Supervisory Judge shall mean the judge appointed by the court in a bankruptcy judgment or suspension of obligation for payment of debts judgment; 9. Day shall mean calendar day and if the last day of a period falls on Sunday or public holiday, the day shall mean the next day. 10. Period shall mean duration of time that exclude the day on which the period commences. 11. Person shall mean natural or corporate person including corporations in the form of legal entities or not in liquidation. CHAPTER II BANKRUPTCY Section One Conditions and Judgment of Bankruptcy Article 2 (1) A debtor having two or more creditors and failing to pay at least one debt which has matured and became payable, shall be declared bankrupt through a Court decision, either at his own petition or at the request of one or more of his creditors. (2) Petitions intended in paragraph (1) may also be filed by the Public Prosecutor in the public interest. (3) In the event that the Debtor is in the form of a bank, the petition for a declaration of bankruptcy may only be filed by Bank Indonesia. The World Bank 4

(4) In the event that the Debtor is in the form of a Securities Company, Stock Exchange, Clearing and Custodian Institution, Settlement and Depository Institution, the petition for a declaration of bankruptcy may only be filed by the Capital Market Supervisory Board. (5) In the event that the Debtor is in the form of Insurance Company, Reassurance Company, Pension Funds, or State-Owned Enterprise engaged in the sectors of public interest, the petition for a declaration of bankruptcy may only be filed by the Minister of Finance. Article 3 (1) A decision on a bankruptcy petition and other related issues as intended by this Law, shall be rendered by the Court having jurisdiction over the region in which the domicile of the Debtor is located. (2) In the event that the Debtor has left the territory of the Republic of Indonesia, the competent Court to render a decision on a bankruptcy petition is the Court having jurisdiction over the region where the last domicile of the Debtor was located. (3) In the event that the Debtor is a shareholder of a firm, the Court having jurisdiction over the region where the domicile of such firm is located shall also be competent to decide. (4) In the event that the Debtor does not have a domicile within the territory of the Republic of Indonesia but conducts his profession or business in the territory of the Republic of Indonesia, the competent Court to decide is the Court having jurisdiction over the region where the domicile of the office from which the debtor conducts his profession or business is located. (5) In the event that the Debtor is a legal entity, the legal domicile thereof shall be as intended by its Articles of Association. Article 4 (1) In the event of a petition for declaration of bankruptcy is submitted by a married Debtor, such petition may only be filed upon the approval of his/her spouse. (2) The provision as set forth in paragraph (1) shall not apply if there is no communal property. The World Bank 5

Article 5 The petition for declaration of bankruptcy of a firm must include the name and place of residence of each shareholder who is jointly and severally liable for the entire debt of the firm Article 6 (1) A Petition for the declaration of bankruptcy shall be filed with the Court through the Chairman of the Court. (2) The Registrar of the Court shall register the petition for declaration of bankruptcy on the date of such petition being filed, and the petitioner shall be provided with a written receipt executed by the Registrar, dated the same day as the date of registration. (3) The Registrar shall refuse the registration of a petition for bankruptcy declaration against institutions as referred to in Article 2 paragraph (3), paragraph (4) and paragraph (5) if the provisions of the said paragraphs are not complied with. (4) The Registrar shall submit the petition for a declaration of bankruptcy to the Chairman of the District Court at the latest within a time period of 2 (two) days counted from the date the petition is registered. (5) At the latest within a time period of 3 (three) days counted from the date that the petition for a declaration of bankruptcy is registered, the Court shall study the application and set a date for a hearing. (6) The hearing on the petition for a declaration of bankruptcy shall be held at the latest within a time period of 20 (twenty) days counted from the date of the petition are registered. (7) Upon the request of the debtor and subject to sufficient reasons, the Court may postpone the holding of the hearing as intended by section (5) for no more than 25 (twenty-five) days counted from the date the petition is registered. The World Bank 6

Article 7 (1) The petition as intended by Article 6, Article 10, Article 11, Article 12, Article 43, Article 56, Article 57, Article 58, Article 68, Article 161, Article 171, Article 207 and Article 212 must be filed by an advocate. (2) The provision as set forth in paragraph (1) shall not apply if the petition is submitted by Public Prosecutor, Bank Indonesia, Capital Market Supervisory Board and Minister of Finance. Article 8 (1) The Court: a. Shall be obligated to summon the Debtor, where a petition for a declaration of bankruptcy is filed by Creditor, Public Prosecutor, Bank of Indonesia, Capital Market Supervisory Board or Minister of Finance; b. May summon the Creditor, where a petition for a declaration of bankruptcy is filed by the Debtor and there is doubt whether the conditions to be declared bankrupt as set forth by Article 2 paragraph (1) have been met. (2) The summons as referred to in paragraph (1) shall be made by the Court Bailiff by means of registered express mail no later than 7 (seven) days prior to holding the first hearing. (3) The summons shall be valid and be considered to have been received by the Debtor if it is made by the Bailiff in accordance with the provisions of paragraph (2). (4) The petition for declaration of bankruptcy shall be granted if there are facts or circumstances summarily proving that the conditions for a declaration of bankruptcy as referred to in Article 2 paragraph (1) have been met. (5) The decision on a petition for declaration of bankruptcy must be rendered at the latest within the time period of 60 (sixty) days counted from the date the petition for declaration of bankruptcy is registered. (6) The court decision as referred to in paragraph (5) shall contain: a. particular article(s) of the relevant law or regulation and/or unwritten legal source that is used as the basis for hearing the petition. b. legal considerations and dissenting opinion from the members or chairman of the panel of judges. The World Bank 7

(7) Decision concerning the petition for bankruptcy declaration as referred in paragraph (6) shall contain complete legal considerations underlying the decision and must be pronounced in a public session and may be executed in advance, despite any legal actions are being taken against such decision. Article 9 Copies of the Court decision as referred to in Article 8 paragraph (6) shall be sent by the Court Bailiff by means of registered express mail to the Debtor, the person filing the petition for bankruptcy declaration, Curator and the Supervisory Judge no later than 3 (three) days after the pronouncement date of the decision on the petition for bankruptcy declaration. Article 10 (1) Pending a decision concerning the declaration of bankruptcy, any Creditor, Public Prosecutor, Bank Indonesia, Capital Market Supervisory Board or Minister of Finance may file a petition with the Court to: a. impose a conservatory attachment, on part or all of the assets of the Debtor; or b. appoint an interim Curator to supervise: 1) the management of the Debtor's affairs; and 2) payments to Creditors, the transfer or pledging as collateral of the Debtor s assets, all of which being within the authority of a Curator. (2) A petition as referred to in paragraph (1) shall only be granted if it is needed to protect the Creditor's interests. (3) In the event that the petition as referred to in paragraph (1) is granted, the Court may stipulate the requirement for the Creditor to provide a security considered fair by the Court. The World Bank 8

Article 11 (1) The legal remedy that may be pursued in respect of the decision regarding a petition for declaration of bankruptcy shall be a cassation to the Supreme Court. (2) The petition for cassation as set forth by paragraph (1) shall be submitted at the latest within time period of 8 (eight) days counted from the date that the decision for which cassation is requested was rendered, by registration thereof with the Registrar at the Court where the decision on the petition for declaration of bankruptcy was rendered. (3) The cassation as referred to in paragraph (2) may be filed by another creditor who was not the party to the bankruptcy case heard at the court of first instance and is not satisfied by the decision on petition for declaration of bankruptcy, in addition to the debtor or creditor(s) that were the parties to the bankruptcy case heard at the court of first instance. (4) The Registrar shall register the petition for cassation on the date the petition is submitted, and the petitioner shall be given a written receipt executed by the Registrar dated the same day as the receipt date of registration. Article 12 (1) The petitioner of cassation to the Supreme Court must submit to the Registrar of the Court a brief for the cassation on the date of registration of the petition for the cassation to the Supreme Court. (2) The Registrar shall be obliged to send the petition for cassation and the cassation brief as set forth under paragraph (1) to the party against whom the cassation has been filed within a time period of 2 (two) days counted from the registration of petition for cassation. (3) The party against whom cassation has been filed could submits a counter cassation brief, to the Registrar at the latest within time period of 7 (seven) days counted from the date the party against whom cassation has been filed received the documents as set forth by paragraph (2) and the Registrar of the Court must send the counter brief to the petitioner of cassation no later than 2 (two) days following the receipt of counter brief. (4) At the latest within time period of 14 (fourteen) days counted from the date of petition for cassation was registered, the Registrar shall be obliged to deliver The World Bank 9

the petition for cassation, cassation brief and counter brief to the Supreme Court. Article 13 (1) The Supreme Court shall, within no more than 2 (two) days from the date the petition for cassation is registered with the Registrar of the Supreme Court, study such petition and determine the date of the hearing. (2) The hearing for the petition for cassation to the Supreme Court shall be held within 20 (twenty) days from the date on which such petition for cassation are registered to the Supreme Court. (3) The decision regarding the petition for cassation to the Supreme Court must be determined within 60 (sixty) days of the date such petition for cassation to the Supreme Court is registered. (4) The decision concerning the petition for cassation to the Supreme Court as referred to in paragraph (3) that contains complete legal considerations underlying the decision shall be rendered in a public session. (5) In case of disagreement between the members with the chairman of the panel of judges, the dissenting opinion shall be stated in the cassation decision. (6) The Registrar of the Supreme Court shall deliver the copy of the cassation decision to the Registrar of the Commercial Court no more than 3 (three) days after the date on which the cassation decision is rendered. (7) The Court Bailiff shall deliver the copies of the cassation decision as set forth in paragraph (5) to the petitioner of cassation, cassation respondent, Curator and Supervisory Judge within 2 (two) days after the receipt of cassation decision. Article 14 (1) A civil review may be filed to the Supreme Court in from a decision concerning a petition for declaration of bankruptcy which already becomes final and binding. (2) The civil review shall also apply mutatis mutandis to the provisions of Article 12 and Article 13. The World Bank 10

Article 15 (1) In the decision on the declaration of bankruptcy, a Curator and Supervisory Judge from the Court judges must be appointed. (2) In the event that the Debtor or Creditor or any other parties authorized to file a petition for bankruptcy declaration as referred to in Article 2 paragraph (2), paragraph (3), paragraph (4), or paragraph (5) does not propose the appointment of a Curator to the Court, the Orphans' Chamber shall act as Curator. (3) The Curator appointed in a manner as set forth in paragraph (1) must be independent and have no conflict of interest with either the Debtor or the Creditor and does not handle more than 3 (three) on-going bankruptcy and suspension of obligation for payment of debts cases at the same time. (4) Within a period of the latest 5 (five) days from the date of the decision declaring bankruptcy is rendered, the Curator shall announce in the State Gazette of the Republic of Indonesia and in at least 2 (two) daily newspapers determined by the Supervisory Judge, containing the following matters: a. name, address and occupation of the Debtor; b. name of the Supervisory Judge; c. name, address and occupation of the Curator; d. name, address and occupation of members of temporary Creditor committee, if already appointed; and e. venue and time of the first Creditors meeting. Article 16 (1) The Curator shall be authorized to perform the management and/or the settlement of the bankruptcy assets since the date on which the bankruptcy decision is rendered despite any submission of cassation or judicial review from the said decision. (2) In case that the bankruptcy declaration decision is cancelled following cassation or judicial review, any acts that have been taken by the Curator before or on the date on which the Curator receives notice of the cancellation decision as referred to in Article 17 shall remain valid and binding upon the Debtor. The World Bank 11

Article 17 (1) The Curator shall be obliged to announce the cassation or judicial review decision canceling bankruptcy decision in the State Gazette of the Republic of Indonesia and in at least 2 (two) newspapers as referred to in Article 15 paragraph (4). (2) The Panel of Judges rendering the decision that cancels bankruptcy declaration decision shall determine the bankruptcy charge and the Curator s fee. (3) The charge as referred to in paragraph (2) shall be levied upon the bankruptcy petitioner or upon the petitioner and the Debtor in such portions as determined by the Panel of Judges. (4) For the payment of the bankruptcy charge and Curator s fee as set forth in paragraph (2), the Chairman of the Court shall render stipulation of execution at the request of the Curator. (5) In case that bankruptcy declaration decision is cancelled, the reconciliation that may have been reached shall by law become null and void. Article 18 (1) In case that the bankruptcy assets are not sufficient to cover the bankruptcy charge, the Court upon recommendation of the Supervisory Judge and after consulting with the temporary Creditor committee, if any, and after summoning and hearing the Debtor, may decide to cancel bankruptcy decision. (2) The decision as referred to in paragraph (1) shall be rendered in a public hearing. (3) The Panel of Judges instructing the cancellation of bankruptcy decision shall determine the bankruptcy charge and the Curator s fee. (4) The bankruptcy charge and the Curator s fee as referred to in paragraph (3) shall be levied upon the Debtor. (5) The charge and fee as referred to in paragraph (3) shall be given priority over all unsecured loan. (6) No remedies may be pursued with regard to the Panel of Judges ruling concerning bankruptcy charge and Curator s fee as referred to in paragraph (3). The World Bank 12

(7) For the payment of bankruptcy charge and Curator s fee as referred to in paragraph (3), the Chairman of the Court shall render execution ruling at the request of the Curator with the acknowledgement of the Supervisory Judge. Article 19 (1) The Decision that cancels bankruptcy declaration decision shall be announced by the Court Registrar in the State Gazette of the Republic of Indonesia and in at least 2 (two) newspapers as referred to in Article 15 paragraph (4). (2) A cassation and/or judicial review may be filed from the decision on the cancellation of bankruptcy declaration decision as referred to in paragraph (1). (3) In case that after the decision on the cancellation of bankruptcy decision is rendered, a petition for bankruptcy decision is being filed again, the Debtor or the Petitioner shall provide evidence that they have sufficient assets to cover bankruptcy charge. Article 20 (1) The Court Registrar shall manage a general register in which any bankruptcy shall be recorded. (2) The general register as referred to in paragraph (1) shall contain the following information in orderly manner: a. a summary of the bankruptcy decision or decision canceling the bankruptcy; b. a brief description of the reconciliation and the ratification of the reconciliation agreement; c. the deletion of the reconciliation; d. the amount of distribution in settlement; f. the revocation of the bankruptcy pursuant to Article 18; and g. the rehabilitation. with the indication of the date of each item. (3) Further provisions concerning the form and contents of general register as referred to in paragraph (1) shall be further stipulated by the Chairman of the Supreme Court. The World Bank 13

(4) The general register as referred to in paragraph (1) shall be publicly opened and may be perused by any individuals for free. Section Two Consequences of Bankruptcy Declaration Article 21 The bankruptcy shall include the total wealth of the Bankrupt Debtor at the time of the bankruptcy declaration, together with that which he acquires during the bankruptcy. Article 22 Notwithstanding this, the following matters shall be excluded: a. Any properties, including animal, that are badly needed by the Debtor in connection with his or her job, his or her equipment, medical equipment for health purpose, bed and related appliances that are used by the Debtor and his or her family, and food supply for 30 (thirty) days for the Debtor and his or her family that are existing at his or her place; b. Anything earned by the Debtor from his or her work as a salary for his or her position or service, as a fee, pension, or allowance as may be determined by the Supervisory Judge; or c. any money given to the Debtor to enable him or her to provide maintenance as required by the prevailing law; Article 23 The term of Bankrupt Debtor as referred to in Article 21 and Article 22 shall include the spouse of the bankrupt debtor, who has been married in communal property. Article 24 (1) A Bankrupt Debtor shall by law forfeit his right to control and manage his assets included in his bankruptcy as of the date of the pronouncement of the bankruptcy declaration decision. (2) The date of the decision as referred to in paragraph (1) shall commence at 00.00 local time. The World Bank 14

(3) In case that a transfer of funds through bank or other non-bank institution has been made before the pronouncement of bankruptcy declaration decision on the decision date as referred to in paragraph (1), the transfer must be completed. (4) In case that a Security Transaction has been conducted at a Stock Exchange before the pronouncement of bankruptcy declaration decision, the transaction must be completed Article 25 Any commitment made by a Debtor after the bankruptcy declaration may not be paid from the bankruptcy assets, unless the commitment will be a benefit to the bankruptcy estate. Article 26 (1) Any legal actions concerning the rights and obligations on bankruptcy assets shall be filed by or against the Curator. (2) If such legal action as set forth in paragraph (1) being filed or continued by or against the Bankrupt Debtor causes a penalty to the Bankrupt Debtor, then such decision shall have no legal effect on the bankruptcy assets. Article 27 Any claim filed for the fulfillment of the contract from the bankruptcy estate during the bankruptcy period, even filed against the Bankrupt Debtor, may only be filed by reporting them for verification. Article 28 (1) With regard to a lawsuit that is filed by the Debtor and is pending during bankruptcy period, at the request of the Defendant, the lawsuit shall be adjourned in order to afford him an opportunity to have the case taken over by the Curator within a period determined by the examining judge. (2) If the Curator does not respond to the call to take over the dispute, the defendant shall be entitled to request the dismissal of the case; in the absence of such request, the case between the Bankrupt Debtor and the The World Bank 15

defendant may be continued and shall not constitute an indebtedness of the bankruptcy assets. (3) The provisions of paragraph (2) shall apply in case that the Curator refuses to take over the case. (4) At any time without being summoned, the Curator shall be authorized to take over the proceeding and, release the Bankrupt Debtor from the dispute. Article 29 A lawsuit that is filed with the Court against the Debtor in order to enforce the Debtor s obligations from the bankruptcy estate and is still ongoing shall become null and void once bankruptcy declaration decision is rendered against the Debtor. Article 30 If a case is continued by the Curator against an opponent, the Curator may file a request to nullify any actions undertaken by the Bankrupt Debtor prior to his bankruptcy declaration, if there is evidence that such actions were intentionally taken to harm the creditor's interest and that this was already known by the opponent. Article 31 (1) The decision of declaration of bankruptcy shall have the consequences that all judgment related to any part of Debtor s assets established before the declaration of bankruptcy shall be immediately ceased and as from that moment no decisions concerning imprisonment for debt may be executed. (2) All decisions concerning attachments shall become null and void and if deemed necessary the Supervisory Judge may confirm the matter by instructing the deletion thereof. (3) Without prejudice to the provisions of Article 93, a Bankrupt Debtor who still serving any imprisonment shall be instantly released after the decision on declaration of bankruptcy has been rendered. Article 32 During the bankruptcy, a Debtor shall not be imposed to pay penal sum. The World Bank 16

Article 33 In case that before bankruptcy declaration decision is rendered, the sale of the Debtor s moveable and immovable assets for the purpose of execution has gone that far so that the sale date has been fixed, upon the consent of the Supervisory Judge, the Curator may proceeds with the sale at the expenses of the bankruptcy estate. Article 34 Unless specified otherwise herein, any agreements that have been entered into with the intention of transferring title on land, conveying the ownership of a vessel, creating mortgage, hypothec or providing fiduciary security, shall not be performed after bankruptcy declaration decision is rendered. Article 35 In case that a claim is submitted for verification, the submission will prevent the statute of limitation. Article 36 (1) Where at the time the decision declaring bankruptcy is rendered, there is an executed contract that has not yet or has only been partially performed, then the party with whom the Debtor had contracted may request confirmation from the Curator with regard to the continuation of the performance of said contract within a time period within a time period agreed to by the Curator and said party. (2) In case no agreement on a time period is reached as set forth under paragraph (1), the Supervisory Judge shall determine said time period. (3) If within such period as set forth under paragraphs (1) and (2) above, the Curator has not responded or is unwilling to continue the performance of the contract, the contract shall be terminated and the party as set forth under paragraph (1) may file a claim for damages and shall be treated as an unsecured creditor. (4) If the Curator assures its willingness, the Curator shall provide security for the proper performance of such contract. (5) The provisions of paragraphs (1), (2), (3) and (4) shall not be applicable to a contract that obligates the Debtor to personally perform the contracted acts. The World Bank 17

Article 37 (1) If under the agreement as referred to in Article 34, there is a commitment to deliver a merchandise within certain period, and the person required to make the delivery under the agreement is declared as bankrupt prior to the delivery of the merchandise, the agreement shall become terminated upon the issuance of bankruptcy declaration decision, and the other party to the said agreement may file a request that it be treated as unsecured Creditor to obtain compensation. (2) In case that the termination of the agreement as referred to in paragraph (1) brings losses to the bankruptcy estate, the other party to the said agreement is obligated to compensate the losses. Article 38 (1) If the Bankrupt Debtor is a lessee of particular property, either the Curator or the lessor may terminate the lease, provided that notice of such termination shall be made prior to the termination date in accordance with the local custom for the termination of such agreements. (2) In case of such termination as referred to in paragraph (1), the notice period of termination as provided for in the agreement or in accordance with common practices shall be observed provided that the notice period shall not be shorter than 90 (ninety) days. (3) In case that the rent has been paid in advance, the lease may not be terminated earlier until the expiry of the period for which the advance rent was paid. (4) As from the date the bankruptcy declaration becomes effective, the rent shall constitute a debt of the bankruptcy estate. Article 39 (1) Employees of the Bankrupt Debtor may resign and the Curator may terminate them with due observance to notice period of dismissal as mutually agreed or in accordance with the prevailing statutory provisions provided the termination of employment relation may be terminated upon no less than 45 (forty five) day prior notice. The World Bank 18

(2) As from the date of the bankruptcy declaration becoming effective, the remunerations of the employees which become outstanding before or after the bankruptcy declaration becoming effective shall become a debt of bankruptcy estate. Article 40 (1) Any inheritance which becomes the right of the bankruptcy debtor during the bankruptcy may not be accepted by the Curator unless the inheritance is beneficial to the bankruptcy estate. (2) The Curator must obtain consent from the Supervisory Judge to refuse the inheritance. Article 41 (1) In the interest of the bankruptcy assets, annulment may be requested to the Court for all legal acts of the Debtor who has been declared bankrupt which prejudice the interests of the Creditors, which were conducted before the declaration of bankruptcy was rendered. (2) The annulment as set forth under paragraph (1) may only be implemented if it can be proven that at the time of the performance of such legal acts, the Debtor and the party with whom the Debtor performed such legal acts realized or should have realized that such legal act would adversely affects the Creditors. (3) Exceptions from the provision set forth in paragraph (1) shall be legal acts of the Debtor which was obligated to perform under a contract and/or by law. Article 42 If the legal act that damages the Creditors was performed within a time period of 1 (one) year before the decision declaring bankruptcy is rendered, while the Debtor and the party with whom said act was performed shall be deemed to have realized or should have realized that such act would result in damage to the Creditors as set forth under Article 41 paragraph (2), in the event that such actions: a. constitutes a contract in which the obligations of the Debtor considerably exceed the obligations of the party with whom the contract was made; The World Bank 19

b. constitutes a payment of, or a security for, a debt which is not yet due and/or not yet payable; c. is performed by an individual Debtor with or for the interests of: 1) his or her spouse, foster child or relative up to the third degree; 2) a legal entity in which the debtor or the parties referred to in point 1) are members of the board of directors or managers or in which said parties, severally or jointly, participate directly or indirectly in the ownership of such legal entity for at least 50% (fifty percents) of the paid up capital; d. is performed by a Debtor being a legal entity with or for the interests of: 1) any member of the board of directors or managers of the Debtor, or a spouse, or foster child, or relative up to the third degree, of a member of such board of directors or managers; 2) any individual, severally or jointly with the spouse, foster child, or relative up to the third degree of such individual, who participates directly or indirectly in the ownership of the Debtor for at least 50% (fifty percents) of the paid up capital; 3) any individual, whose spouse, or foster child, or relative up to the third degree, participates directly or indirectly in the ownership of the Debtor for at least 50% (fifty percents) of the paid up capital; e. is performed by a Debtor being a legal entity with or for the interests of another legal entity, if: 1) any individual member of the board of directors or manager of both legal entities is the same person; 2) the spouse, or foster child, or relative up to the third degree, of any individual member of the board of directors or manager of the Debtor is a member of the board of directors or manager in the other legal entity, or vice versa; 3) any individual member of the board of director or manger, or member of the board of supervisors of the Debtor, or the spouse, or foster child, or relative up to the third degree, participates, jointly or severally, directly or indirectly, in the ownership of the other legal entity for at least 50% (fifty percent) of the paid up capital, or vice versa; The World Bank 20

4) the Debtor is a member of the board of directors or a manager in the other legal entity, or vice versa; 5) the same legal entity, or the same individual, either jointly or severally with the spouse, and/or foster children and the relatives up to third degree, participates, directly or indirectly in both entities for at least 50% (fifty percents) of the paid up capital; f. is performed by a Debtor being a legal entity with or with respect to other legal entity in a group of legal entities of which the Debtor is a member; g. provisions under paragraph c, d, e, and f shall apply mutatis mutandis in case that such actions are taken by the Debtor with or for the interest of: 1) member of management of a legal entity, the spouse, foster child or relatives up to third degree of the member of management; 2) individuals, either jointly or severally with the spouse, foster child or relatives up to third degree that participate directly or indirectly in the control of such legal entity; Article 43 Annulment of a gift made by a Debtor may be requested to the Court, if the Curator can prove that at the time such gift was made, the Debtor knew or should have known that such action would result in damage to the Creditors. Article 44 Unless it can be proven otherwise, the Debtor shall be deemed to have known or should have known that such gift would damage the Creditors if such gift was made within a time period of 1 (one) year before the decision for declaration of bankruptcy is rendered. Article 45 The annulment of payment by the Bankrupt Debtor of payable debt may made only if it is proven that the payment recipient was aware that a petition for the declaration of bankruptcy against the Debtor has been registered, or if the payment resulted from the conspiracy between the Bankrupt Debtor and the Creditor, making the Creditor enjoy priority over other Creditors. The World Bank 21

Article 46 (1) Pursuant to the provisions of Article 45, refund may not be demanded in respect of payment received by substitute holder of notes or sight notes that, due to its legal relation with the previous holder of the same, was obliged to receive the payment. (2) In case of non-refund of payment as referred to in paragraph (1), any person enjoying the benefit as a consequence of the issuance of money order or sight notes, shall be obliged to refund to the bankruptcy estate, the amount already paid by the Debtor if: a. it can be proven that at the time of the issuance of the notes as referred to in paragraph (1), the payment recipient was aware that a petition for bankruptcy declaration against the Debtor was already registered; or b. the issuance of the notes was the result of conspiracy between the Debtor and the first holder. Article 47 (1) The lawsuit pursuant to the provisions of Articles 41, 42, 43, 44, 45 and 46 shall be filed by the Curator to the Court. (2) The Creditor acting on the ground of the reasons as referred to in Articles 41, 42, 43, 44, 45 and 46 may file objection in response to the Curator s lawsuit. Article 48 (1) In case that the bankruptcy ends upon the ratification of an amicable settlement, the lawsuit as referred to in Article 47 shall become void. (2) The lawsuit as referred to in Article 47 shall not be void if the reconciliation agreement contains the release of the bankruptcy estate, in which case the lawsuit may be continued and maintained by the liquidators for the interest of the Creditor. The World Bank 22

Article 49 (1) Any persons receiving properties that constitute part of the Debtor s assets from a legal act that has been annulled must return such properties to the Curator and the case shall be reported to the Supervisory Judge. (2) In case that the person as referred to in paragraph (1) cannot return the properties in their original condition, it shall pay compensation to the bankruptcy estate. (3) The right of any third parties over the properties as referred to in paragraph (1) which was earned in good faith and not for free shall be protected. (4) The property received by the Debtor or the replacement thereof shall be returned by the Curator in so far that the bankruptcy estate benefits thereof. In case of deficiency, the person against whom the claim for annulment was initiated may step in as a concurrent Creditor. Article 50 (1) Any payment made by a person to the Bankrupt Debtor to comply with the agreement made before the declaration of bankruptcy, shall be exempted and shall be beyond the bankruptcy estate, to the extent he is unaware of the declaration of bankruptcy. (2) The payment mentioned under paragraph (1) which was made before the declaration of bankruptcy cannot be exempted and is beyond the bankruptcy estate, unless such person can prove that the declaration of bankruptcy and the way of publication according to the provisions of laws cannot be perceived at his place of domicile. (3) The payment made to Bankrupt Debtor shall release the Debtor from bankruptcy estate, if the payment benefits such bankruptcy estate. Article 51 (1) Each person having indebtedness to or to whom Bankrupt Debtor is indebted, may request for a setoff, if the indebtedness occurs before the pronouncement of bankruptcy declaration decision, or as a result of transaction with the Bankrupt Debtor before the issuance of bankruptcy declaration decision. The World Bank 23

(2) If necessary, the Bankrupt Debtor s indebtedness to such person shall be counted pursuant to the provisions of Article 136 and Article 137. Article 52 (1) An individual who has taken over the debt or receivables from a third party prior to the pronouncement of bankruptcy declaration cannot request to a setoff if, the taking over of the debt and credits is not based on good faith. (2) The setoff cannot be made for any debt or receivables which are taken over after the pronouncement of bankruptcy declaration. Article 53 A debtor of the Bankrupt Debtor that intends to set off its debts against payment order or sight notes, shall be required to prove that at the commencement of bankruptcy declaration it has been a good faith owner of the document concerned. Article 54 An individual being in partnership with the Bankrupt Debtor which is dissolved during or due to the bankruptcy, shall be entitled to set off Bankrupt Debtor s obligations against the Bankrupt Debtor s the share of profit distribution to pay the partnership s debts. Article 55 (1) With due observance to the provisions of Articles 56, 57 and 58, any Creditor holding lien, fiduciary security, security right, mortgage, or other collateral rights on property, may execute his rights as if no bankruptcy occurred. (2) For the purpose of collecting payment of receivables as referred to in Article 136 and Article 137, the claims for receivable payment may be satisfied after a verification of claim, and only the sums so acknowledged as correct that shall be paid. Article 56 (1) The right of enforcement of Creditors as set forth under Article 55 paragraph (1) and the rights of any third parties to claim assets that are under the control of the Bankrupt Debtor or the Curator shall be stayed for a time period of at The World Bank 24

most 90 (ninety) days counted from the date of the decision declaring bankruptcy is rendered. (2) The stay as set forth under paragraph (1) shall not apply to claims of creditors which are secured by cash deposits and the rights of creditors to set-off debts. (3) During the period of the stay as referred to in paragraph (1), the Curator may use the bankruptcy estate in the form of movable or immovable assets or sell the bankruptcy estate in the form of movable or immovable assets which is under the possession of the Curator for the continuation of the business of the Debtor, provided that reasonable protection has been given for the interests of the Creditors or any third parties as referred to in paragraph (1). (4) During the period of the stay as referred to in paragraph (1), the Curator may use the bankruptcy estate in the form of movable or immovable assets or sell the bankruptcy estate in the form of movable or immovable assets which is under the possession of the Curator for the continuation of the Debtor s business, provided that reasonable protection has been given for the interests of the Creditors or any third parties as referred to in paragraph (1). Article 57 (1) The period as referred to in Article 56 paragraph (1) shall expire by law upon the earlier termination of bankruptcy or upon commencement of insolvency as referred to in Article 178 paragraph (1). (2) Creditors or third parties whose rights have been stayed may file a petition to the Curator for the lifting of the stay or to amend the conditions of such stay. (3) If the Curator rejects the petition as referred to in paragraph (1), the Creditor or the third party may file such petition to the Supervisory Judge. (4) The Supervisory Judge shall, no later than 1 (one) day after receipt of the petition as referred to in paragraph (2), order the Curator to immediately serve summons, by registered mail or courier, upon the Creditor and the third party as referred to in paragraph (2) for a hearing of their petition. (5) The Supervisory Judge is obligated to render a decision upon such petition at the latest within a time period of 10 (ten) days counted from the submission to the Supervisory Judge of the petition referred to under paragraph (6). (6) In deciding upon the petition as referred to in paragraph (2), the Supervisory Judge shall take into consideration: The World Bank 25

a. the length of the stay period which has already elapsed; b. the protection of the interests of the creditor and related third party; c. the possibility of reconciliation; d. the impact of such stay on the survival and management of the Debtor's business and the settlement of bankruptcy estate. Article 58 (1) The decision of the Supervisory Judge upon the petition as set forth under Article 57 paragraph (2) may take the form of a lifting of the stay for one or more Creditors and/or the impositions of conditions on the length of the stay period and/or on one or more security rights that may be enforced by the Creditors. (2) If the Supervisory Judge refuses to lift or amend the conditions of such stay, the Supervisory Judge shall be obliged to order the Curator to provide adequate protection to protect the interests of the petitioners. (3) The Creditors or the third parties who submitted the petition as intended by Article 57 paragraph (2) or the Curator may submit an objection to the Court against the decision of the Supervisory Judge at the latest within a time period of 5 (five) days counted from the issuance of such decision, and the Court shall be obligated to decide on such objection at the latest within a time period of 10 (ten) days counted from the date of submission of such objection. (4) No legal remedies whatsoever including judicial review may be pursued in respect of the Court's decision as referred to in paragraph (2). Article 59 (1) With due observance to the provisions of Articles 56, 57 and 58, a Creditor holding rights as referred to in Article 55 paragraph (1), shall exercise such rights within no more than 2 (two) months from the commencement of insolvency as referred to in Article 178 paragraph (1). (2) Upon the expiration of the period as referred to in paragraph (1), the Curator must demand the delivery of goods serving as collateral to be sold in accordance with the procedure as referred to in Article 185, without prejudice to the said right of the Creditor holding the right to obtain the proceeds from the sale of such collateral. The World Bank 26

(3) The Curator may release goods serving as collateral at any time by paying to the Creditor the lesser between the market price of the collateral goods and the total debt secured by such collateral goods, whichever is the smaller amount. Article 60 (1) The Creditors who hold the rights as referred to in Article 55 paragraph (1) that exercises his rights must account to the Curator for the proceeds of the sale of goods serving as collateral and return to the Curator the balance of the proceeds from the sale after deducting the amount of the debt, interest and expenses. (2) Upon the demand of the Curator or creditor having higher priority than that of the creditor holding the right as referred to in paragraph (1), the Creditor holding the right shall give up such portion of the proceeds of such sale that equal to the amount of the preferred claim. (3) If the proceeds from the sale as referred to in paragraph (1) are not sufficient to cover the debt, the Creditors who hold such right may file a claim for the settlement of such deficit from the bankruptcy estate as a concurrent creditor, after filing a request for the verification of claims. Article 61 A Creditor that has the right to retain the goods owned by the Bankrupt Debtor shall not lose this right following the decision of the bankruptcy declaration. Article 62 (1) In case of the bankruptcy of a person, the spouse shall is permitted to recover all movable and immovable goods, which constitute his or her individual property, and any things that came into his or her possession as a gifts or inheritances. (2) If the spouse s property has been disposed of by her husband or his wife, but the proceeds have not yet been paid or it is still separate from the bankruptcy estate, she or he may claim the right to take the payment of such property. (3) In respect of personal debts, the spouse may act as a Creditor. The World Bank 27

Article 63 A spouse shall have no right to claim any profits contemplated in a prenuptial agreement from the bankruptcy estate of his or her spouse who has been declared as bankrupt, and, likewise, the Creditor of a spouse shall have no right to claim any profits contemplated in a prenuptial agreement from the spouse who has been declared as bankrupt. Article 64 (1) The bankruptcy of a husband or a wife who was married with combined property shall be considered as a bankruptcy of such combined property. (2) Without prejudice to the exception provided in Article 25, the bankruptcy shall include anything in the combined property and, the bankruptcy shall be for the benefit of all Creditors who have a claim in respect of the combined property. (3) If the husband or the wife who is declared as bankrupt owns any goods which do not form part of the combined property in the marriage, these shall also be included in the bankruptcy, but the goods shall only be used to pay the personal debt of the husband or the wife who is declared as bankrupt. Section Three. The Management of the Bankruptcy Estate Paragraph 1 Supervisory Judge Article 65 The Supervisory Judge shall supervise management and settlement of the bankruptcy estate. Article 66 The District Court is obliged to hear the advice of the Supervisory Judge before deciding any matters related to the management and settlement of the bankruptcy estate. The World Bank 28